U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

OR

[    ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to _____

Commission File Number: 001-32433

PRESTIGE BRANDS HOLDINGS, INC.

(Exact name of Registrant as specified in its charter)

Delaware	20-1297589
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

90 North Broadway

Irvington, New York 10533

(Address of Principal Executive Offices, including zip code)

(914) 524-6810

(Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x      No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer o		Accelerated filer x
Non-accelerated filer o	(Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o No x

As of November 7, 2011, there were 50,433,268 shares of common stock outstanding.

Prestige Brands Holdings, Inc.

Form 10-Q

Index

PART I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements
	Consolidated Statements of Operations for the three and six months ended September 30, 2011 and 2010 (unaudited)	2
	Consolidated Balance Sheets as of September 30, 2011 and March 31, 2011 (unaudited)	3
	Consolidated Statements of Cash Flows for the six months ended September 30, 2011 and 2010 (unaudited)	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	50
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	50
Item 6.	Exhibits	50
	Signatures	51

Trademarks and Trade Names

Trademarks and trade names used in this Quarterly Report on Form 10-Q are the property of Prestige Brands Holdings, Inc. or its subsidiaries, as the case may be.  We have italicized our trademarks or trade names when they appear in this Quarterly Report on Form 10-Q.

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PART I FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

Prestige Brands Holdings, Inc.

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended September 30,						Six Months Ended September 30,
(In thousands, except per share data)	2011			2010			2011			2010
Revenues
Net sales	$	104,572		$	77,488		$	198,879		$	148,010
Other revenues	972			815			1,960			1,529
Total revenues	105,544			78,303			200,839			149,539
Cost of Sales
Cost of sales (exclusive of depreciation shown below)	51,638			35,713			97,065			68,978
Gross profit	53,906			42,590			103,774			80,561
Operating Expenses
Advertising and promotion	13,073			8,240			23,306			15,726
General and administrative	8,861			8,101			18,711			15,515
Depreciation and amortization	2,570			2,413			5,120			4,823
Total operating expenses	24,504			18,754			47,137			36,064
Operating income	29,402			23,836			56,637			44,497
Other (income) expense
Interest income	(1		)	—			(3		)	—
Interest expense	8,280			5,373			16,860			10,834
Gain on settlement	—			—			(5,063		)	—
Loss on extinguishment of debt	—			—			—			300
Total other expense	8,279			5,373			11,794			11,134
Income from continuing operations before income taxes	21,123			18,463			44,843			33,363
Provision for income taxes	8,174			7,053			17,126			12,744
Income from continuing operations	12,949			11,410			27,717			20,619
Discontinued Operations
Income from discontinued operations, net of income tax	—			162			—			559
Loss on sale of discontinued operations, net of income tax	—			(550		)	—			(550		)
Net income	$	12,949		$	11,022		$	27,717		$	20,628
Basic earnings per share:
Income from continuing operations	$	0.26		$	0.23		$	0.55		$	0.41
Income from discontinued operations and loss on sale of discontinued operations	—			(0.01		)	—			—
Net income	$	0.26		$	0.22		$	0.55		$	0.41
Diluted earnings per share:
Income from continuing operations	$	0.26		$	0.23		$	0.55		$	0.41
Income from discontinued operations and loss on sale of discontinued operations	—			(0.01		)	—			—
Net income	$	0.26		$	0.22		$	0.55		$	0.41
Weighted average shares outstanding:
Basic	50,278			50,053			50,231			50,045
Diluted	50,671			50,141			50,659			50,123

See accompanying notes.

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Prestige Brands Holdings, Inc.

Consolidated Balance Sheets

(Unaudited)

(In thousands) Assets	September 30, 2011			March 31, 2011
Current assets
Cash and cash equivalents	$	7,961		$	13,334
Accounts receivable, net	49,445			44,393
Inventories	46,408			39,751
Deferred income tax assets	5,549			5,292
Prepaid expenses and other current assets	3,018			4,812
Total current assets	112,381			107,582
Property and equipment, net	1,379			1,444
Goodwill	153,696			154,896
Intangible assets, net	781,615			786,361
Other long-term assets	6,070			6,635
Total Assets	$	1,055,141		$	1,056,918
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	25,184		$	21,615
Accrued interest payable	10,313			10,313
Other accrued liabilities	20,634			22,280
Total current liabilities	56,131			54,208
Long-term debt
Principal amount	452,000			492,000
Less unamortized discount	(4,597		)	(5,055		)
Long-term debt, net of unamortized discount	447,403			486,945
Deferred income tax liabilities	160,152			153,933
Total Liabilities	663,686			695,086
Commitments and Contingencies — Note 17
Stockholders' Equity
Preferred stock - $0.01 par value
Authorized - 5,000 shares
Issued and outstanding - None	—			—
Common stock - $0.01 par value
Authorized - 250,000 shares
Issued - 50,433 shares at September 30, 2011 and 50,276 shares at March 31, 2011	504			503
Additional paid-in capital	390,160			387,932
Treasury stock, at cost - 181 shares at September 30, 2011 and 160 shares at March 31, 2011	(687		)	(416		)
Accumulated other comprehensive loss, net of tax	(52		)	—
Retained earnings (accumulated deficit)	1,530			(26,187		)
Total Stockholders' Equity	391,455			361,832
Total Liabilities and Stockholders' Equity	$	1,055,141		$	1,056,918

 See accompanying notes.

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Prestige Brands Holdings, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended September 30,
(In thousands)	2011			2010
Operating Activities
Net income	$	27,717		$	20,628
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	5,120			5,052
Loss on sale of discontinued operations	—			890
Deferred income taxes	5,962			5,176
Amortization of deferred financing costs	565			504
Stock-based compensation costs	1,657			1,744
Loss on extinguishment of debt	—			300
Amortization of debt discount	458			285
Loss on disposal of equipment	—			125
Changes in operating assets and liabilities
Accounts receivable	(5,075		)	(1,635		)
Inventories	(6,672		)	2,679
Inventories held for sale	—			1,100
Prepaid expenses and other current assets	1,794			1,714
Accounts payable	3,594			1,209
Accrued liabilities	(1,654		)	3,046
Net cash provided by operating activities	33,466			42,817
Investing Activities
Purchases of equipment	(307		)	(254		)
Proceeds from sale of discontinued operations	—			4,122
Proceeds from escrow of Blacksmith acquisition	1,200			—
Net cash provided by investing activities	893			3,868
Financing Activities
Payment of deferred financing costs	—			(112		)
Repayment of long-term debt	(40,000		)	(32,587		)
Proceeds from exercise of stock options	571			—
Shares surrendered as payment of tax withholding	(271		)	(51		)
Net cash used in financing activities	(39,700		)	(32,750		)
Effects of exchange rate changes on cash and cash equivalents	(32		)	—
(Decrease) increase in cash and cash equivalents	(5,373		)	13,935
Cash and cash equivalents - beginning of period	13,334			41,097
Cash and cash equivalents - end of period	$	7,961		$	55,032
Interest paid	$	15,790		$	5,179
Income taxes paid	$	5,844		$	5,103

See accompanying notes.

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Prestige Brands Holdings, Inc.

Notes to Consolidated Financial Statements

1. Business and Basis of Presentation

Nature of Business

Prestige Brands Holdings, Inc. (referred to herein as the “Company” or "we", which reference shall, unless the context requires otherwise, be deemed to refer to Prestige Brands Holdings, Inc. and all of its direct and indirect wholly-owned subsidiaries on a consolidated basis) is engaged in the marketing, sales and distribution of Over-The-Counter ("OTC") Healthcare and Household Cleaning brands to mass merchandisers, drug stores, supermarkets and dollar and club stores primarily in the United States, Canada and certain other international markets.  Prestige Brands Holdings, Inc. is a holding company with no operations and is also the parent guarantor of the senior credit facility and the senior notes described in Note 10 to the Consolidated Financial Statements.

Basis of Presentation

The unaudited Consolidated Financial Statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  All significant intercompany transactions and balances have been eliminated in the Consolidated Financial Statements.  In the opinion of management, the financial statements include all adjustments, consisting of normal recurring adjustments that are considered necessary for a fair presentation of our consolidated financial position, results of operations and cash flows for the interim periods.  Our fiscal year ends on March 31st of each year. References in these Consolidated Financial Statements or notes to a year (e.g., “2012”) mean our fiscal year ending or ended on March 31st of that year. Operating results for the three and six months ended September 30, 2011 are not necessarily indicative of results that may be expected for the fiscal year ending March 31, 2012.  This financial information should be read in conjunction with our financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2011.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period.  Although these estimates are based on our knowledge of current events and actions that we may undertake in the future, actual results could differ from those estimates.  As discussed below, our most significant estimates include those made in connection with the valuation of intangible assets, sales returns and allowances, trade promotional allowances and inventory obsolescence.

Cash and Cash Equivalents

We consider all short-term deposits and investments with original maturities of three months or less to be cash equivalents.  Substantially all of our cash is held by a large regional bank with headquarters in California.  We do not believe that, as a result of this concentration, we are subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships.

Accounts Receivable

We extend non-interest-bearing trade credit to our customers in the ordinary course of business.  We maintain an allowance for doubtful accounts receivable based upon historical collection experience and expected collectability of the accounts receivable.  In an effort to reduce credit risk, we (i) have established credit limits for all of our customer relationships, (ii) perform ongoing credit evaluations of customers' financial condition, (iii) monitor the payment history and aging of customers' receivables, and (iv) monitor open orders against an individual customer's outstanding receivable balance.

Inventories

Inventories are stated at the lower of cost or market value, with cost determined by using the first-in, first-out method.  We reduce inventories for diminution of value resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated market value.  Factors utilized in the determination of estimated market value include (i) current sales data and historical return rates, (ii) estimates of future demand, (iii) competitive pricing pressures, (iv) new product introductions, (v) product expiration dates, and (vi) component and packaging obsolescence.

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Property and Equipment

Property and equipment are stated at cost and are depreciated using the straight-line method based on the following estimated useful lives:

	Years
Machinery	5
Computer equipment	3
Furniture and fixtures	7

Leasehold improvements are amortized over the lesser of the term of the lease or five years.

Expenditures for maintenance and repairs are charged to expense as incurred.  When an asset is sold or otherwise disposed of, we remove the cost and associated accumulated depreciation from the respective accounts and recognize the resulting gain or loss in the Consolidated Statement of Operations.

Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.  An impairment loss is recognized if the carrying amount of the asset exceeds its fair value.

Goodwill

The excess of the purchase price over the fair market value of assets acquired and liabilities assumed in purchase business combinations is classified as goodwill.  Goodwill is not amortized, although the carrying value is tested for impairment at least annually in the fourth fiscal quarter of each year, or more frequently if events or changes in circumstances indicate that the asset may be impaired.  We test goodwill for impairment at the reporting unit “brand” level, which is one level below the operating segment level.

Intangible Assets

Intangible assets, which are comprised primarily of trademarks, are stated at cost less accumulated amortization.  For intangible assets with finite lives, amortization is computed on the straight-line method over estimated useful lives ranging from 3 to 30 years.

Indefinite-lived intangible assets are tested for impairment at least annually in the fourth fiscal quarter of each year; however, at each reporting period, an evaluation is made to determine whether events and circumstances continue to support an indefinite useful life.  Intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts exceed their fair values and may not be recoverable.  An impairment loss is recognized if the carrying amount of the asset exceeds its fair value.

Deferred Financing Costs

We have incurred debt origination costs in connection with the issuance of long-term debt.  These costs are capitalized as deferred financing costs and amortized using the straight-line method, which approximates the effective interest method, over the term of the related debt.

Revenue Recognition

Revenues are recognized when the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the selling price is fixed or determinable, (iii) the product has been shipped and the customer takes ownership and assumes the risk of loss and (iv) collection of the resulting receivable is reasonably assured.  We have determined that these criteria are met and the transfer of the risk of loss generally occurs when product is received by the customer and, accordingly, recognize revenue at that time.  Provision is made for estimated discounts related to customer payment terms and estimated product returns at the time of sale based on our historical experience.

As is customary in the consumer products industry, we participate in the promotional programs of our customers to enhance the sale of our products.  The cost of these promotional programs varies based on the actual number of units sold during a finite period of time.  These promotional programs consist of direct to consumer incentives, such as coupons and temporary price reductions, as well as incentives to our customers, such as allowances for new distribution, including slotting fees, and cooperative advertising.  Estimates of the costs of these promotional programs are based on (i) historical sales experience, (ii) the current promotional offering, (iii) forecasted data, (iv) current market conditions and (v) communication with customer purchasing/marketing personnel.  At the completion of a promotional program, the estimated amounts are adjusted to actual results.

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Due to the nature of the consumer products industry, we are required to estimate future product returns.  Accordingly, we record an estimate of product returns concurrent with recording sales, which is made after analyzing (i) historical return rates, (ii) current economic trends, (iii) changes in customer demand, (iv) product acceptance, (v) seasonality of our product offerings, and (vi) the impact of changes in product formulation, packaging and advertising.

Cost of Sales

Cost of sales includes product costs, warehousing costs, inbound and outbound shipping costs, and handling and storage costs.  Shipping, warehousing and handling costs for the three and six months ended September 30, 2011 were $6.9 million and $13.2 million, respectively, and $5.7 million and $10.6 million, respectively, for the three and six months ended September 30, 2010.

Advertising and Promotion Costs

Advertising and promotion costs are expensed as incurred.  Allowances for new distribution costs associated with products, including slotting fees, are recognized as a reduction of sales.  Under these new distribution arrangements, the retailers allow our products to be placed on the stores' shelves in exchange for such fees.  

Stock-based Compensation

We recognize stock-based compensation by measuring the cost of services to be rendered based on the grant-date fair value of the equity award.  Compensation expense is to be recognized over the period an employee is required to provide service in exchange for the award, generally referred to as the requisite service period.

Income Taxes

Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.  A valuation allowance is established when necessary to reduce deferred tax assets to the amounts expected to be realized.

The Income Taxes topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  As a result, we have applied a more-likely-than-not recognition threshold for all tax uncertainties.  The guidance only allows the recognition of those tax benefits that have a greater than 50% likelihood of being sustained upon examination by the various taxing authorities.

We are subject to taxation in the United States and various state and foreign jurisdictions.  

We classify penalties and interest related to unrecognized tax benefits as income tax expense in the Consolidated Statements of Operations.

Derivative Instruments

Companies are required to recognize derivative instruments as either assets or liabilities in the Consolidated Balance Sheets at fair value.  The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship.  For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, a cash flow hedge or a hedge of a net investment in a foreign operation.

While we have utilized derivative financial instruments in the past, we did not have any derivative financial instruments at September 30, 2011 or March 31, 2011 or for any of the periods presented.

Earnings Per Share

Basic earnings per share is calculated based on income available to common stockholders and the weighted-average number of shares outstanding during the reporting period.  Diluted earnings per share is calculated based on income available to common stockholders and the weighted-average number of common and potential common shares outstanding during the reporting period.  Potential common shares, composed of the incremental common shares issuable upon the exercise of stock options, stock appreciation rights and unvested restricted shares, are included in the earnings per share calculation to the extent that they are dilutive.

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Recently Issued Accounting Standards

In September 2011, the FASB issued guidance regarding testing goodwill for impairment. The new guidance is intended to simplify how entities test goodwill for impairment. The new guidance permits an entity to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in the ASC Intangibles-Goodwill and Other topic. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. The new guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. We do not expect that the adoption of this new guidance will have a material impact on our Consolidated Financial Statements.

In June 2011, the FASB issued guidance regarding presentation of comprehensive income. Under the ASC Comprehensive Incometopic, entities are allowed the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. This guidance does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and should be applied retrospectively. We do not expect that the adoption of this new guidance will have a material impact on our Consolidated Financial Statements.

In May 2011, the FASB issued guidance on fair value measurement. The ASC Fair Value Measurement topic amended the requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value”. The new guidance states that the concepts of highest and best use and valuation premise are only relevant when measuring the fair value of non-financial assets (that is, it does not apply to financial assets or any liabilities). The disclosure requirements have been enhanced, with the most significant change requiring entities, for their recurring Level 3 fair value measurements, to disclose quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements. New disclosures are required about the use of a non-financial asset measured or disclosed at fair value if its use differs from its highest and best use. In addition, entities must report the level in the fair value hierarchy of assets and liabilities not recorded at fair value but where fair value is disclosed. This guidance is effective during interim and annual periods beginning after December 15, 2011 and is required to be applied prospectively. We do not expect that the adoption of this new guidance will have a material impact on our Consolidated Financial Statements.

Management has reviewed and continues to monitor the actions of the various financial and regulatory reporting agencies and is currently not aware of any other pronouncement that could have a material impact on our consolidated financial position, results of operations or cash flows.

2. Acquisitions

Blacksmith Acquisition

On November 1, 2010, we acquired 100% of the capital stock of Blacksmith Brands Holdings, Inc. (“Blacksmith”) for $190.0 million in cash, plus a working capital adjustment of $13.4 million, and an additional $1.1 million was paid by us on behalf of Blacksmith for the seller's transaction costs. As previously disclosed, we brought to arbitration a matter regarding the working capital adjustment related to Blacksmith. On July 20, 2011, we received notification from the arbitrator that we would be awarded a working capital adjustment pending final resolution and distribution from the escrow agent. In September 2011, we received $1.2 million in settlement of this matter, which reduced the amount of recorded goodwill related to Blacksmith.

In connection with this acquisition, we acquired five leading consumer OTC brands: Efferdent, Effergrip, PediaCare, Luden's, and NasalCrom. The purchase price was funded by cash provided by the issuance of long-term debt and additional bank borrowings, which are discussed further in Note 10 to the Consolidated Financial Statements.

The acquisition was accounted for in accordance with the Business Combinations topic of the ASC, which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition.

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The allocation of the purchase price to assets acquired and liabilities assumed is based on a valuation which we performed to determine the fair value of such assets as of the acquisition date. The following table summarizes our allocation of the $203.4 million purchase price to the assets acquired and liabilitiesassumed at the Blacksmith acquisition date:

(In thousands)	November 1, 2010
Cash acquired	$	2,507
Accounts receivable, net	17,473
Other receivables	1,198
Income taxes receivable	5
Inventories	22,155
Prepaids and other current assets	44
Property, plant and equipment, net	226
Goodwill	42,207
Trademarks	165,346
Other long-term assets	19
Total assets acquired	251,180
Accounts payable	7,060
Accrued expenses	5,212
Income taxes payable	2,031
Deferred income taxes	33,526
Total liabilities assumed	47,829
Total purchase price	$	203,351

We recorded goodwill based on the amount by which the purchase price exceeded the fair value of assets acquired and liabilities assumed. The amount of goodwill deductible for tax purposes is $4.6 million.

The fair value of the trademarks was comprised of $158.0 million of non-amortizable intangible assets and $7.3 million of amortizable intangible assets. We are amortizing the purchased amortizable intangible assets on a straight-line basis over an estimated weighted average useful life of 15 years. The weighted average remaining life for amortizable intangible assets at September 30, 2011 was 14.1 years.

The operating results of Blacksmith have been included in our Consolidated Financial Statements from November 1, 2010, the date of acquisition. Revenues of the acquired operations for the three and six months ended September 30, 2011 were $22.5 million and $41.6 million, respectively.

The following table provides our unaudited pro forma revenues, income from continuing operations and income from continuing operations per basic and diluted common share as if the results of Blacksmith's operations had been included in our operations commencing on April 1, 2010, and based upon available information related to Blacksmith's operations. This pro forma information is not necessarily indicative either of the combined results of operations that actually would have been realized by us had the Blacksmith acquisition been consummated at the beginning of the period for which the pro forma information is presented, or of future results.

(In thousands, except per share data)	Three Months Ended September 30, 2010		Six Months Ended September 30, 2010
Revenues	$	102,170	$	197,274
Income from continuing operations	12,381		22,563
Basic earnings per share:
Income from continuing operations	$	0.25	$	0.45
Diluted earnings per share:
Income from continuing operations	$	0.25	$	0.45

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Dramamine Acquisition

On January 6, 2011, we acquired certain assets comprising the Dramamine brand in the United States. The purchase price was $77.1 million in cash, after a $0.1 million post-closing inventory adjustment and including transaction costs incurred in the acquisition of $1.2 million. The purchase price was funded by cash on hand.

The acquisition was accounted for in accordance with the Business Combinations topic of the ASC. Accordingly, as the Dramamine assets acquired do not constitute a business, as defined in the ASC, we have accounted for the transaction as an asset acquisition. The total consideration paid, including transaction costs, has been allocated to the tangible and intangible assets acquired based upon their relative fair values at the date of acquisition.

The allocation of the purchase price to assets acquired and liabilities assumed is based on valuations which we performed to determine the fair value of such assets as of the acquisition date. The following table summarizes our allocation of the $77.1 million purchase price to the assets we acquired comprising the Dramamine brand:

(In thousands)	January 6, 2011
Inventories	$	1,249
Trademark	75,866
Total purchase price	$	77,115

The $75.9 million fair value of the acquired Dramamine trademark was comprised solely of non-amortizable intangible assets.

3. Discontinued Operations and Sale of Certain Assets

On September 1, 2010, we sold certain assets related to the Cutex nail polish remover brand for $4.1 million. In accordance with the Discontinued Operations topic of the ASC, we reclassified the related operating results as discontinued operations in our Consolidated Financial Statements and related notes for all periods presented. We recognized a loss of $0.9 million on a pre-tax basis and $0.6 million, net of tax effects of $0.3 million, on the sale in the second quarter of 2011. As a result of the divestiture of Cutex, which comprised a substantial majority of the assets in our previously reported Personal Care segment, we reclassified the then remaining assets to the OTC Healthcare segment for all periods presented.

The following table summarizes the results of discontinued operations:

(In thousands)	Three Months Ended September 30,				Six Months Ended September 30,
	2011		2010		2011		2010
Components of Income
Revenues	$	—	$	1,769	$	—	$	3,943
Income from discontinued operations, net of income tax	—		162		—		559

4. Accounts Receivable

Accounts receivable consist of the following:

(In thousands)	September 30, 2011			March 31, 2011
Components of Accounts Receivable
Trade accounts receivable	$	55,797		$	50,333
Other receivables	661			712
	56,458			51,045
Less allowances for discounts, returns and uncollectible accounts	(7,013		)	(6,652		)
Accounts receivable, net	$	49,445		$	44,393

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5. Inventories

Inventories consist of the following:

(In thousands)	September 30, 2011		March 31, 2011
Components of Inventories
Packaging and raw materials	$	977	$	1,287
Finished goods	45,431		38,464
Inventories	$	46,408	$	39,751

Inventories are carried and depicted above at the lower of cost or market, which includes a reduction in inventory values of $1.8 million and $0.6 million at September 30, 2011 and March 31, 2011, respectively, related to obsolete and slow-moving inventory.

6. Property and Equipment

Property and equipment consist of the following:

(In thousands)	September 30, 2011			March 31, 2011
Components of Property and Equipment
Machinery	$	1,431		$	1,215
Computer equipment	2,426			2,341
Furniture and fixtures	241			239
Leasehold improvements	427			423
	4,525			4,218
Accumulated depreciation	(3,146		)	(2,774		)
Property and equipment, net	$	1,379		$	1,444

We recorded depreciation expense of $0.2 million for each of the three months ended September 30, 2011 and September 30, 2010, and of $0.4 million and $0.3 million for the six months ended September 30, 2011 and September 30, 2010, respectively.

7. Goodwill

A reconciliation of the activity affecting goodwill by operating segment is as follows:

(In thousands)	OTC Healthcare			Household Cleaning			Consolidated
Balance — March 31, 2011
Goodwill	$	277,677		$	72,549		$	350,226
Accumulated impairment losses	(130,170		)	(65,160		)	(195,330		)
	147,507			7,389			154,896
Additions	—			—			—
Balance — September 30, 2011
Goodwill	277,677			72,549			350,226
Blacksmith escrow settlement *	(1,200		)	—			(1,200		)
Accumulated impairment losses	(130,170		)	(65,160		)	(195,330		)
	$	146,307		$	7,389		$	153,696

* As previously disclosed, we brought to arbitration a matter regarding the working capital adjustment related to Blacksmith. On July 20, 2011, we received notification from the arbitrator that we would be awarded a working capital adjustment pending final resolution and distribution from the escrow agent. In September 2011, we received $1.2 million in settlement of this matter, which reduced the amount of recorded goodwill related to Blacksmith.

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At March 31, 2011, during our annual test for goodwill impairment, there were no indicators of impairment under the analysis. Accordingly, no impairment charge was recorded in 2011. Additionally, for the three and six months ended September 30, 2011, no indicators of impairment existed and no impairment charge was recorded.

The discounted cash flow methodology is a widely-accepted valuation technique to estimate fair value utilized by market participants in the transaction evaluation process and has been applied consistently. We also considered our market capitalization at March 31, 2011, as compared to the aggregate fair values of our reporting units, to assess the reasonableness of our estimates pursuant to the discounted cash flow methodology. The estimates and assumptions made in assessing the fair value of our reporting units and the valuation of the underlying assets and liabilities are inherently subject to significant uncertainties. Consequently, changing rates of interest and inflation, declining sales or margins, increases in competition, changing consumer preferences, technical advances, or reductions in advertising and promotion may require impairments in the future.

8. Intangible Assets

A reconciliation of the activity affecting intangible assets is as follows:

(In thousands)	Indefinite Lived Trademarks		Finite Lived Trademarks		Non Compete Agreement		Totals
Carrying Amounts
Balance — March 31, 2011	$	688,484	$	150,293	$	158	$	838,935
Additions	—		—		—		—
Balance — September 30, 2011	$	688,484	$	150,293	$	158	$	838,935
Accumulated Amortization
Balance — March 31, 2011	$	—	$	52,416	$	158	$	52,574
Additions	—		4,746		—		4,746
Balance — September 30, 2011	$	—	$	57,162	$	158	$	57,320
Intangible assets, net — September 30, 2011	$	688,484	$	93,131	$	—	$	781,615

In a manner similar to goodwill, we completed our test for impairment of our indefinite-lived intangible assets during the three months ended March 31, 2011.  We did not record an impairment charge, as facts and circumstances indicated that the fair values of the intangible assets for our operating segments exceeded their carrying values. Additionally, for the indefinite-lived intangible assets, an evaluation of the facts and circumstances as of September 30, 2011 continues to support an indefinite useful life for these assets. Therefore, no impairment charge was recorded for the three and six months ended September 30, 2011.

The weighted average remaining life for finite-lived intangible assets at September 30, 2011 was approximately 14.2 years and the amortization expense for the three and six months ended September 30, 2011 was $2.4 million and $4.7 million, respectively. At September 30, 2011, intangible assets are expected to be amortized over a period of 3 to 30 years as follows:

(In thousands)
Year Ending March 31,	Amount
2012 (Remaining six months ending March 31, 2012)	$	4,569
2013	8,641
2014	7,416
2015	6,082
2016	6,082
Thereafter	60,341
	$	93,131

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9. Other Accrued Liabilities

Other accrued liabilities consist of the following:

(In thousands)	September 30, 2011		March 31, 2011
Accrued marketing costs	$	10,965	$	9,967
Accrued payroll	4,431		7,589
Accrued commissions	474		408
Accrued income taxes	2,217		531
Accrued professional fees	1,671		1,953
Accrued severance	465		1,324
Accrued other	411		508
	$	20,634	$	22,280

10. Long-Term Debt

Long-term debt consists of the following, as of the dates indicated:

(In thousands, except percentages)	September 30, 2011			March 31, 2011
Senior secured term loan facility (“2010 Senior Term Loan”) that bears interest at the Company's option at either the prime rate plus a margin of 2.25% or LIBOR plus 3.25% with a LIBOR floor of 1.5%.  At September 30, 2011, the average interest rate on the 2010 Senior Term Loan was 4.75%.  All required principal payments prior to maturity have been paid and the remaining principal on the 2010 Senior Term Loan is due on the maturity date.  The 2010 Senior Term Loan matures on March 24, 2016 and is collateralized by substantially all of the Company's assets. The 2010 Senior Term Loan is unconditionally guaranteed by Prestige Brands Holdings, Inc. and its domestic wholly-owned subsidiaries, other than Prestige Brands, Inc. (the "Borrower"). Each of these guarantees is joint and several. There are no significant restrictions on the ability of any of the guarantors to obtain funds from their subsidiaries.	$	202,000		$	242,000
Senior unsecured notes ("2010 Senior Notes") bear interest at 8.25%, with interest only payable on April 1st and October 1st of each year. The 2010 Senior Notes mature on April 1, 2018; however, the Company may earlier redeem some or all of the 2010 Senior Notes at redemption prices set forth in the indenture governing the 2010 Senior Notes (the "Senior Notes Indenture"). The 2010 Senior Notes are unconditionally guaranteed by Prestige Brands Holdings, Inc. and its domestic wholly-owned subsidiaries other than Prestige Brands, Inc., the issuer. Each of these guarantees is joint and several. There are no significant restrictions on the ability of any of the guarantors to obtain funds from their subsidiaries.	250,000			250,000
	452,000			492,000
Current portion of long-term debt	—			—
	452,000			492,000
Less: unamortized discount on the 2010 Senior Notes	(4,597		)	(5,055		)
Long-term debt, net of unamortized discount and premium	$	447,403		$	486,945

On March 24, 2010, Prestige Brands, Inc. issued $150.0 million of 2010 Senior Notes, with an interest rate of 8.25% and a maturity date of April 1, 2018. On November 1, 2010, Prestige Brands, Inc. issued an additional $100.0 million of the 2010 Senior Notes. The 2010 Senior Notes issued in March and November were issued at an aggregate face value of $150.0 million and $100.0 million, respectively, with a discount to the initial purchasers of $2.2 million and a premium of $0.3 million, respectively, and net proceeds to the Company of $147.8 million and $100.3 million, respectively, yielding an 8.5% effective interest rate.

On March 24, 2010, Prestige Brands, Inc. entered into the 2010 Senior Term Loan for $150.0 million, with an interest rate at LIBOR plus 3.25% with a LIBOR floor of 1.5% and a maturity date of March 24, 2016. The $150.0 million 2010 Senior Term Loan was entered into with a discount to lenders of $1.8 million and net proceeds to the Company of $148.2 million, yielding a 5.0% effective interest rate. On November 1, 2010, we, together with the Borrower and certain of our other subsidiaries, executed an Increase Joinder to our Credit Agreement dated March 24, 2010 (the "Increase Joinder") pursuant to which the Borrower entered into an incremental term loan in the amount of $115.0 million. The incremental 2010 Senior Term Loan will also mature on March 24, 2016.

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Additionally, on March 24, 2010, Prestige Brands, Inc. entered into a non-amortizing senior secured revolving credit facility (“2010 Revolving Credit Facility” and, collectively with the 2010 Senior Term Loan, the “Credit Agreement”) in an aggregate principal amount of up to $30.0 million. On November 1, 2010, pursuant to the Increase Joinder, the amount of the 2010 Revolving Credit Facility was increased by $10.0 million and the Borrower had borrowing capacity under the revolving credit facility in an aggregate principal amount of up to $40.0 million. Our 2010 Revolving Credit Facility was available for maximum borrowings of $40.0 million at September 30, 2011. Except for the increase in the amount of the revolving credit facility, no other changes were made to the 2010 Revolving Credit Facility.

In connection with the financing activities of March 2010 relating to the 2010 Senior Notes, the 2010 Senior Term Loan, and the 2010 Revolving Credit Facility, we incurred $7.3 million in issuance costs, of which $6.6 million was capitalized as deferred financing costs and $0.7 million was expensed. In connection with the financing activities of November 2010 relating to the 2010 Senior Notes, the 2010 Senior Term Loan, and the 2010 Revolving Credit Facility, we incurred $0.6 million in issuance costs, all of which were capitalized as deferred financing costs. The deferred financing costs are being amortized over the terms of the related loan and notes.

On March 24, 2010, we retired our existing Senior Secured Term Loan facility with an original maturity date of April 6, 2011. In addition, on March 24, 2010, we repaid a portion and, on April 15, 2010, redeemed in full the remaining outstanding indebtedness under our previously outstanding Senior Subordinated Notes due in 2012, which bore interest at 9.25% with a maturity date of April 15, 2012. In connection with the refinancing, we recognized a $0.3 million loss on the extinguishment of debt for the six months ended September 30, 2010.

The 2010 Senior Notes are senior unsecured obligations of the Company and are guaranteed on a senior unsecured basis. The 2010 Senior Notes are effectively junior in right of payment to all existing and future secured obligations of the Company, equal in right of payment with all existing and future senior unsecured indebtedness of the Company, and senior in right of payment to all future subordinated debt of the Company.

At any time prior to April 1, 2014, we may redeem the 2010 Senior Notes in whole or in part at a redemption price equal to 100% of the principal amount of the notes redeemed, plus a “make-whole premium” calculated as set forth in the Senior Notes Indenture, together with accrued and unpaid interest, if any, to the date of redemption. We may redeem the 2010 Senior Notes in whole or in part at any time on or after the 12-month period beginning April 1, 2014 at a redemption price of 104.125% of the principal amount thereof, at a redemption price of 102.063% of the principal amount thereof if the redemption occurs during the 12-month period beginning on April 1, 2015, and at a redemption price of 100% of the principal amount thereof if the redemption occurs on and after April 1, 2016, in each case, plus accrued and unpaid interest, if any, to the redemption date. In addition, prior to April 1, 2013, with the net cash proceeds from certain equity offerings, we may redeem up to 35% in aggregate principal amount of the 2010 Senior Notes at a redemption price of 108.250% of the principal amount of the 2010 Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to the redemption date.

The Credit Agreement contains various financial covenants, including provisions that require us to maintain certain leverage and interest coverage ratios and not to exceed annual capital expenditures of $3.0 million. The Credit Agreement and the Senior Notes Indenture also contain provisions that restrict us from undertaking specified corporate actions, such as asset dispositions, acquisitions, dividend payments, repurchases of common shares outstanding, changes of control, incurrences of indebtedness, creation of liens, making of loans and transactions with affiliates. Additionally, the Credit Agreement and the Senior Notes Indenture contain cross-default provisions whereby a default pursuant to the terms and conditions of certain indebtedness will cause a default on the remaining indebtedness under the Credit Agreement and the Senior Notes Indenture. At September 30, 2011, we were in compliance with the covenants under our long-term indebtedness.

During the six months ended September 30, 2011, we made voluntary principal payments against outstanding indebtedness of $40.0 million in excess of required payments under the Credit Agreement governing the 2010 Senior Term Loan. In accordance with the agreement governing the 2010 Senior Term Loan, such payments were applied against the first four required principal payments, and any additional principal payments are applied ratably toward the remaining required principal payments. As such, we do not have a required principal payment until the 2010 Senior Term Loan matures in 2016.

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Future principal payments required in accordance with the terms of the Credit Agreement and the Senior Notes Indenture are as follows:

(In thousands)
Year Ending March 31,	Amount
2012 (Remaining six months ending March 31, 2012)	$	—
2013	—
2014	—
2015	—
2016	202,000
2017	—
Thereafter	250,000
	$	452,000

11. Fair Value Measurements

As we deem appropriate, we may from time to time utilize derivative financial instruments to mitigate the impact of changing interest rates associated with our long-term debt obligations or other derivative financial instruments. While we have utilized derivative financial instruments in the past, we did not have any derivative financial instruments outstanding at either September 30, 2011 or at March 31, 2011 or during any of the periods presented. We have not entered into derivative financial instruments for trading purposes; all of our derivatives were over-the-counter instruments with liquid markets.

For certain of our financial instruments, including cash, accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate their respective fair values due to the relatively short maturity of these amounts.

At September 30, 2011 and March 31, 2011, the carrying value of the 2010 Senior Term Loan was $202.0 million and $242.0 million, respectively.  The terms of the facility provide that the interest rate is adjusted, at our option, on either a monthly or quarterly basis, to the prime rate plus a margin of 2.25% or to LIBOR, with a floor of 1.50%, plus a margin of 3.25%.  The market value of our 2010 Senior Term Loan was approximately $200.5 million and $243.4 million at September 30, 2011 and March 31, 2011, respectively.  

At September 30, 2011 and March 31, 2011, the carrying value of our 2010 Senior Notes was $250.0 million.  The market value of these notes was approximately $254.1 million and $264.4 million at September 30, 2011 and March 31, 2011, respectively.  The market values have been determined from market transactions in our debt securities.

12. Stockholders' Equity

The Company is authorized to issue 250.0 million shares of common stock, $0.01 par value per share, and 5.0 million shares of preferred stock, $0.01 par value per share.  The Board of Directors may direct the issuance of the undesignated preferred stock in one or more series and determine preferences, privileges and restrictions thereof.

Each share of common stock has the right to one vote on all matters submitted to a vote of stockholders.  The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to prior rights of holders of all classes of stock outstanding having priority rights as to dividends.  No dividends have been declared or paid on the Company's common stock through September 30, 2011.

During the three and six months ended September 30, 2011, we repurchased zero and 20,999 shares, respectively, of restricted common stock from our employees pursuant to the provisions of the various employee restricted stock awards. The repurchases were at an average price of $12.86. During the three and six months ended September 30, 2010, we repurchased 11,576 and 18,313 shares, respectively, of restricted common stock from our employees pursuant to the provisions of the various employee restricted stock awards. The repurchases were at an average price of $7.68 and $7.62, respectively, during the three and six months ended September 30, 2010. All of such shares have been recorded as treasury stock.

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13. Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) ("AOCI") is comprised of various items that affect equity and results from recognized transactions and other economic events, other than transactions with owners in their capacity as owners. AOCI consisted of the following at September 30, 2011 and March 31, 2011:

	September 30,			March 31,
(In thousands)	2011			2011
Components of Accumulated Other Comprehensive Loss
Cumulative translation adjustment	$	(52	)	$	—
Total accumulated other comprehensive loss	$	(52	)	$	—

The following table describes the components of comprehensive income for the six months ended September 30, 2011 and 2010:

	Six Months Ended September 30,
(In thousands)	2011			2010
Components of Comprehensive Income
Net income	$	27,717		$	20,628
Translation adjustments, net of related income tax effects	(52		)	—
Comprehensive Income	$	27,665		$	20,628

14. Earnings Per Share

Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted average number of shares of common stock outstanding plus the effect of potentially dilutive common shares outstanding during the period using the treasury stock method, which includes stock options, restricted stock awards and restricted stock units. The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended September 30,					Six Months Ended September 30,
(In thousands, except per share data)	2011		2010			2011		2010
Numerator
Income from continuing operations	$	12,949	$	11,410		$	27,717	$	20,619
Income from discontinued operations and loss on sale of discontinued operations, net of income tax	—		(388		)	—		9
Net income	$	12,949	$	11,022		$	27,717	$	20,628
Denominator
Denominator for basic earnings per share — weighted average shares	50,278		50,053			50,231		50,045
Dilutive effect of unvested restricted common stock (including restricted stock units) and options issued to employees and directors	393		88			428		78
Denominator for diluted earnings per share	50,671		50,141			50,659		50,123
Earnings per Common Share:
Basic earnings per share from continuing operations	$	0.26	$	0.23		$	0.55	$	0.41
Basic earnings per share from discontinued operations and loss on sale of discontinued operations	—		(0.01		)	—		—
Basic net earnings per share	$	0.26	$	0.22		$	0.55	$	0.41
Diluted earnings per share from continuing operations	$	0.26	$	0.23		$	0.55	$	0.41
Diluted earnings per share from discontinued operations and loss on sale of discontinued operations	—		(0.01		)	—		—
Diluted net earnings per share	$	0.26	$	0.22		$	0.55	$	0.41

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At September 30, 2011 and September 30, 2010, there were zero and 0.4 million shares, respectively, of restricted stock awards that have been excluded from the calculation of basic earnings per share as these awards were subject to contingencies that were not met as of the end of each respective period.  Additionally, for the three months ended September 30, 2011 and 2010, there were 0.6 million and 1.5 million shares, respectively, attributable to outstanding stock-based awards that were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. For the six months ended September 30, 2011 and 2010, there were 0.5 million and 1.5 million shares, respectively, attributable to outstanding stock-based awards that were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

15. Share-Based Compensation

In connection with our initial public offering, the Board of Directors adopted the 2005 Long-Term Equity Incentive Plan (the “Plan”) which provides for the grant of up to a maximum of 5.0 million shares of restricted stock, stock options, restricted stock units and other equity-based awards.  Directors, officers and other employees of the Company and its subsidiaries, as well as others performing services for the Company, are eligible for grants under the Plan.

During the three and six months ended September 30, 2011, pre-tax share-based compensation costs charged against income were $0.8 million and $1.7 million, respectively, and the related income tax benefit recognized was $0.2 million and $0.4 million, respectively.  During the three and six months ended September 30, 2010, pre-tax share-based compensation costs charged against income were $0.8 million and $1.7 million, respectively, and the related income tax benefit recognized was $0.4 million and $0.7 million, respectively.

Restricted Shares

Restricted shares granted to employees under the Plan generally vest in three to five years, contingent on attainment of certain performance goals by the Company, including revenue and earnings before income taxes, depreciation and amortization targets, or the attainment of certain time vesting thresholds.  The restricted share awards provide for accelerated vesting if there is a change of control, as defined in the Plan. On May 10, 2011, the Compensation Committee of the Board of Directors granted 89,923 shares of restricted common stock to certain executive officers and employees under the Plan at a grant-date fair value of $11.27 per share. These restricted common stock awards will vest in their entirety three years after the date of grant so long as the grantee remains employed by us. In addition, on May 30, 2011, previously issued restricted performance shares vested, resulting in an additional grant of 16,153 shares at a fair value of $10.91 per share. On August 2, 2011, the Compensation Committee of our Board of Directors granted 16,408 shares of restricted stock units to the independent members of our Board of Directors. The restricted stock units will vest in their entirety one year after the date of grant so long as membership on the Board of Directors continues through the vesting date, with settlement in common stock to occur on the earliest of the director's death, disability or six month anniversary of the date on which the director's Board membership ceases for reasons other than death or disability. The fair value of restricted shares is determined using the closing price of our common stock on the day preceding the grant date.  The weighted-average grant-date fair value of restricted shares granted during the six months ended September 30, 2011 and 2010 was $11.35 and $8.85, respectively.

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A summary of the Company's restricted shares granted under the Plan is presented below:

Restricted Shares	Shares (in thousands)		Weighted- Average Grant-Date Fair Value
Six months ended September 30, 2010:
Nonvested at March 31, 2010	287.1		$	8.86
Granted	130.2		8.85
Vested and issued	(48.5	)	9.23
Forfeited	(15.0	)	10.45
Outstanding at September 30, 2010	353.8		8.74
Vested at September 30, 2010	29.2		6.84
Six months ended September 30, 2011:
Nonvested at March 31, 2011	275.4		8.46
Granted	122.5		11.35
Vested and issued	(103.4	)	9.93
Forfeited	(15.2	)	10.72
Outstanding at September 30, 2011	279.3		9.06
Vested at September 30, 2011	54.0		7.4

Options

The Plan provides that the exercise price of options granted shall be no less than the fair market value of the Company's common stock on the date the options are granted.  Options granted have a term of no greater than 10 years from the date of grant and vest in accordance with a schedule determined at the time the option is granted, generally three to five years.  The option awards provide for accelerated vesting if there is a change in control, as defined in the Plan.

The fair value of each option award is estimated on the date of grant using the Black-Scholes Option Pricing Model that uses the assumptions noted in the table below.  Expected volatilities are based on the historical volatility of our common stock and other factors, including the historical volatilities of comparable companies.  We use appropriate historical data, as well as current data, to estimate option exercise and employee termination behaviors.  Employees that are expected to exhibit similar exercise or termination behaviors are grouped together for the purposes of valuation.  The expected terms of the options granted are derived from management's estimates and consideration of information derived from the public filings of companies similar to us and represent the period of time that options granted are expected to be outstanding.  The risk-free rate represents the yield on U.S. Treasury bonds with a maturity equal to the expected term of the granted option.  On May 10, 2011, the Compensation Committee of the Board of Directors granted stock options to acquire 308,154 shares of common stock to certain executive officers and employees under the Plan at an exercise price of $11.27 per share.

The weighted-average grant-date fair value of the options granted during the six months ended September 30, 2011 and 2010 was $5.83 and $4.81, respectively.

	Six Months Ended September 30,
	2011			2010
Expected volatility	53.0		%	52.7		%
Expected dividends	$	—		$	—
Expected term in years	6.5			6.5
Risk-free rate	2.4		%	3.4		%

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A summary of option activity under the Plan is as follows:

Options	Shares (in thousands)		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Six months ended September 30, 2010:
Outstanding at March 31, 2010	1,584.2		$	8.50
Granted	362.1		9.03
Exercised	—		—
Forfeited or expired	(26.8	)	10.44
Outstanding at September 30, 2010	1,919.5		8.57		8.6	$	2,534
Exercisable at September 30, 2010	616.4		10.18		7.8	—
Six months ended September 30, 2011:
Outstanding at March 31, 2011	1,621.5		8.19
Granted	308.1		11.27
Exercised	(54.2	)	10.54
Forfeited or expired	(39.3	)	10.99
Outstanding at September 30, 2011	1,836.1		8.58		8.0	2,129
Exercisable at September 30, 2011	711.2		8.65		7.2	851

The aggregate intrinsic value of options exercised in the six months ended September 30, 2011 was $0.1 million. The aggregate intrinsic value at September 30, 2011 for options granted during the six months ended September 30, 2011 was zero.

At September 30, 2011, there were $4.1 million of unrecognized compensation costs related to nonvested share-based compensation arrangements under the Plan, based on management's estimate of the shares that will ultimately vest.  We expect to recognize such costs over a weighted-average period of 1.1 years.  The total fair value of shares vested during the six months ended September 30, 2011 and 2010 was $2.7 million and $0.4 million, respectively.  For the six months ended September 30, 2011, cash received from the exercise of stock options was $0.7 million, and we realized $0.1 million in tax benefits for the tax deductions resulting from these option exercises. There were no options exercised during the six months ended September 30, 2010, and therefore we did not recognize any tax benefits during this period associated with option exercises.  At September 30, 2011, there were 2.5 million shares available for issuance under the Plan.

16. Income Taxes

Income taxes are recorded in our quarterly financial statements based on our estimated annual effective income tax rate, subject to adjustments for discrete events should they occur.  The effective tax rate used in the calculation of income taxes was 38.7% and 38.2%, respectively, for the three months ended September 30, 2011 and September 30, 2010, respectively. The increase in the effective tax rate for the three months ended September 30, 2011 is primarily due to certain non-deductible costs in the current period. The effective tax rate used in the calculation of income taxes was 38.2% for each of the six months ended September 30, 2011 and September 30, 2010.

At September 30, 2011, a wholly-owned subsidiary had a net operating loss carryforward of approximately $1.5 million which may be used to offset future taxable income of the consolidated group and which begins to expire in 2020.  The net operating loss carryforward is subject to an annual limitation as to usage of approximately $0.2 million pursuant to Internal Revenue Code Section 382.

Uncertain tax liability activity is as follows:

(In thousands)	2011		2010
Balance — March 31	$	456	$	315
Adjustments based on tax positions related to the current year	—		—
Balance — September 30	$	456	$	315

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We recognize interest and penalties related to uncertain tax positions as a component of income tax expense.  We did not incur any material interest or penalties related to income taxes in any of the periods presented. We do not anticipate any significant events or circumstances that would cause a material change to these uncertainties during the ensuing year.

17. Commitments and Contingencies

San Francisco Technology Inc. Litigation

On April 5, 2010, Medtech Products Inc. (“Medtech”), a wholly-owned subsidiary of the Company, was served with a Complaint filed by San Francisco Technology Inc. (“SFT”) in the U.S. District Court for the Northern District of California, San Jose Division (the “California Court”). In the Complaint, SFT asserted a qui tam action against Medtech, alleging false patent markings with the intent to deceive the public regarding Medtech's two Dermoplast products. Medtech filed a Motion to Dismiss or Stay and a Motion to Sever and Transfer Venue to the U.S. District Court for the Southern District of New York (the “New York Court”). On July 19, 2010, the California Court severed the action as to each and every separate defendant (including Medtech) and transferred the action against Medtech to the New York Court. On October 25, 2010, Medtech filed with the New York Court a Motion to Dismiss, or in the Alternative, to Stay, the action brought by SFT. In May 2011, the New York Court granted Medtech's Motion to Dismiss, although SFT was allowed to file an amended Complaint. In August 2011, SFT and Medtech executed a settlement agreement which dismissed the pending litigation in the New York Court with prejudice. The terms of the settlement agreement did not have a material impact on the Company.

Trutek Arbitration

On November 1, 2010, Trutek Corp. (“Trutek”) commenced an arbitration proceeding against Prestige Brands, Inc. (“Prestige Brands”), a wholly-owned subsidiary of the Company, in which Trutek alleged that Prestige Brands breached certain terms of a license agreement between Trutek and Prestige Brands providing for the license of certain intellectual property by Trutek to Prestige Brands for an allergy relief product. Prestige Brands has denied Trutek's allegations of breach of the license agreement. The arbitration hearing was conducted in October 2011. Closing arguments are scheduled to be held on November 30, 2011 and a written decision by the arbitration panel will be provided thereafter.

In addition to the matters described above, we are involved from time to time in other routine legal matters and other claims incidental to our business. We review outstanding claims and proceedings internally and with external counsel as necessary to assess probability and amount of potential loss. These assessments are re-evaluated at each reporting period and as new information becomes available to determine whether a reserve should be established or if any existing reserve should be adjusted. The actual cost of resolving a claim or proceeding ultimately may be substantially different than the amount of the recorded reserve. In addition, because it is not permissible under GAAP to establish a litigation reserve until the loss is both probable and estimable, in some cases there may be insufficient time to establish a reserve prior to the actual incurrence of the loss (upon verdict and judgment at trial, for example, or in the case of a quickly negotiated settlement). We believe the resolution of routine matters and other incidental claims, taking into account reserves and insurance, will not have a material adverse effect on our business, financial condition or results from operations.

Lease Commitments

We have operating leases for office facilities and equipment in New York and Wyoming, which expire at various dates through 2014.

The following summarizes future minimum lease payments for our operating leases as of September 30, 2011:

(In thousands)	Facilities		Equipment		Total
Year Ending March 31,
2012 (Remaining six months ending March 31, 2012)	$	523	$	56	$	579
2013	1,082		50		1,132
2014	719		23		742
2015	56		—		56
Thereafter	—		—		—
	$	2,380	$	129	$	2,509

Rent expense for each of the three months ended September 30, 2011 and 2010 was $0.2 million, while rent expense for each of the six months ended September 30, 2011 and 2010 was $0.4 million.

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Purchase Commitments

We have entered into a 10 year supply agreement for the exclusive manufacture of a portion of one of our Household Cleaning products.  Although we are committed under the supply agreement to pay the minimum amounts set forth in the table below, the total commitment is less than 10 percent of the estimated purchases that we expect to make during the course of the agreement.

(In thousands)
Year Ending March 31,	Amount
2012 (Remaining six months ending March 31, 2012)	$	1,384
2013	1,166
2014	1,136
2015	1,105
2016	1,074
Thereafter	3,599
	$	9,464

18. Concentrations of Risk

Our revenues are concentrated in the areas of OTC Healthcare and Household Cleaning products.  We sell our products to mass merchandisers, food and drug accounts, and dollar and club stores.  During the three and six months ended September 30, 2011, approximately 55.5% and 56.9%, respectively, of our total revenues were derived from our five top selling brands.  During the three and six months ended September 30, 2010, approximately 73.7% and 72.9%, respectively, of our total revenues were derived from our five top selling brands. One customer accounted for more than 10% of our gross revenues for each of the periods presented. Such customer accounted for approximately 17.0% and 18.2% of our gross revenues for the three and six months ended September 30, 2011, respectively, and 21.5% and 22.5% of our gross revenues for the three and six months ended September 30, 2010, respectively. At September 30, 2011, approximately 20.5% of accounts receivable were owed by the same customer.

We manage product distribution in the continental United States through a third-party distribution center in St. Louis, Missouri.  A serious disruption, such as a flood or fire, to the main distribution center could damage our inventories and could materially impair our ability to distribute our products to customers in a timely manner or at a reasonable cost.  We could incur significantly higher costs and experience longer lead times associated with the distribution of our products to our customers during the time that it takes us to reopen or replace our distribution center.  As a result, any such disruption could have a material adverse effect on our sales and profitability.

At September 30, 2011, we had relationships with 51 third-party manufacturers.  Of those, we had long-term contracts with 14 manufacturers that produced items that accounted for approximately 64.4% of gross sales for the six months ended September 30, 2011. At September 30, 2010, we had relationships with 37 third-party manufacturers.  Of those, we had long-term contracts with 18 manufacturers that produced items that accounted for approximately 58.9% of gross sales for the six months ended September 30, 2010. The fact that we do not have long-term contracts with certain manufacturers means they could cease producing products at any time and for any reason, or initiate arbitrary and costly price increases, which could have a material adverse effect on our business, financial condition and results from operations.

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19. Business Segments

Segment information has been prepared in accordance with the Segment Reporting topic of the FASB ASC. As described in Note 3, on September 1, 2010, we sold certain assets related to the Cutex nail polish remover brand included in our previously reported Personal Care segment to an unrelated third party. The assets sold comprised a substantial majority of the assets in our previously reported Personal Care segment. The remaining assets and revenues generated do not constitute a reportable segment under the Segment Reporting topic of the FASB ASC.  Therefore, we reclassified the remaining assets and results to the OTC Healthcare segment for all periods presented. Our current operating and reportable segments now consist of (i) OTC Healthcare and (ii) Household Cleaning.

There were no inter-segment sales or transfers during any of the periods presented.  We evaluate the performance of our operating segments and allocate resources to them based primarily on contribution margin.

The tables below summarize information about our operating and reportable segments.

	Three Months Ended September 30, 2011
(In thousands)	OTC Healthcare		Household Cleaning		Consolidated
Net sales	$	78,998	$	25,574	$	104,572
Other revenues	158		814		972
Total revenues	79,156		26,388		105,544
Cost of sales	33,085		18,553		51,638
Gross profit	46,071		7,835		53,906
Advertising and promotion	12,155		918		13,073
Contribution margin	$	33,916	$	6,917	40,833
Other operating expenses					11,431
Operating income					29,402
Other expense					8,279
Provision for income taxes					8,174
Income from continuing operations					12,949
Income from discontinued operations, net of income tax					—
Loss on sale of discontinued operations, net of income tax					—
Net income					$	12,949

	Three Months Ended September 30, 2010
(In thousands)	OTC Healthcare		Household Cleaning		Consolidated
Net sales	$	50,657	$	26,831	$	77,488
Other revenues	182		633		815
Total revenues	50,839		27,464		78,303
Cost of sales	17,798		17,915		35,713
Gross profit	33,041		9,549		42,590
Advertising and promotion	6,912		1,328		8,240
Contribution margin	$	26,129	$	8,221	34,350
Other operating expenses					10,514
Operating income					23,836
Other expense					5,373
Provision for income taxes					7,053
Income from continuing operations					11,410
Income from discontinued operations, net of income tax					162
Loss on sale of discontinued operations, net of income tax					$	(550	)
Net income					$	11,022

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	Six Months Ended September 30, 2011
(In thousands)	OTC Healthcare		Household Cleaning		Consolidated
Net sales	$	150,001	$	48,878	$	198,879
Other revenues	357		1,603		1,960
Total revenues	150,358		50,481		200,839
Cost of sales	61,869		35,196		97,065
Gross profit	88,489		15,285		103,774
Advertising and promotion	20,576		2,730		23,306
Contribution margin	$	67,913	$	12,555	80,468
Other operating expenses					23,831
Operating income					56,637
Other expense					11,794
Provision for income taxes					17,126
Income from continuing operations					27,717
Income from discontinued operations, net of income tax					—
Loss on sale of discontinued operations, net of income tax					—
Net income					$	27,717

	Six Months Ended September 30, 2010
(In thousands)	OTC Healthcare		Household Cleaning		Consolidated
Net sales	$	95,365	$	52,645	$	148,010
Other revenues	195		1,334		1,529
Total revenues	95,560		53,979		149,539
Cost of sales	33,650		35,328		68,978
Gross profit	61,910		18,651		80,561
Advertising and promotion	12,075		3,651		15,726
Contribution margin	$	49,835	$	15,000	64,835
Other operating expenses					20,338
Operating income					44,497
Other expense					11,134
Provision for income taxes					12,744
Income from continuing operations					20,619
Income from discontinued operations, net of income tax					559
Loss on sale of discontinued operations, net of income tax					(550		)
Net income					$	20,628

During the three and six months ended September 30, 2011, approximately 96.3% and 96.4%, respectively, of our sales were made to customers in the United States and Canada, while during the three and six months ended September 30, 2010, approximately 95.6% and 95.8%, respectively, of our sales were made to customers in the United States and Canada. Other than the United States, no individual geographical area accounted for more than 10% of net sales in any of the periods presented.

At September 30, 2011, substantially all of our long-term assets were located in the United States and have been allocated to the operating segments as follows:

(In thousands)	OTC Healthcare		Household Cleaning		Consolidated
Goodwill	$	146,307	$	7,389	$	153,696
Intangible assets
Indefinite-lived	568,664		119,820		688,484
Finite-lived	62,603		30,528		93,131
	631,267		150,348		781,615
	$	777,574	$	157,737	$	935,311

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20. Gain on Settlement

On June 15, 2011, we received a settlement payment of $8.0 million in the resolution of a pending litigation matter. We incurred costs of $2.9 million in pursuing this matter. Therefore, we recorded a pre-tax gain on settlement of $5.1 million net of costs incurred and $3.2 million after income tax effects for the six months ended September 30, 2011. The $5.1 million pre-tax gain is included in other (income) expense, as this gain did not relate to our ongoing operations.

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21. Condensed Consolidating Financial Statements

As described in Note 10, we, together with certain of our wholly-owned subsidiaries, have fully and unconditionally guaranteed, on a joint and several basis, the obligations of Prestige Brands, Inc. (a wholly-owned subsidiary of the Company) set forth in the Senior Notes Indenture, including, without limitation, the obligation to pay principal and interest with respect to the 2010 Senior Notes. The wholly-owned subsidiaries of the Company that have guaranteed the 2010 Senior Notes are as follows: Prestige Personal Care Holdings, Inc., Prestige Personal Care, Inc., Prestige Services Corp., Prestige Brands Holdings, Inc. (a Virginia corporation), Prestige Brands International, Inc., Medtech Holdings, Inc., Medtech Products Inc., The Cutex Company, The Denorex Company and The Spic and Span Company (collectively, the "Subsidiary Guarantors"). A significant portion of our operating income and cash flow is generated by our subsidiaries. As a result, funds necessary to meet Prestige Brands, Inc.'s debt service obligations are provided in part by distributions or advances from our subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the financial condition and operating requirements of our subsidiaries, could limit Prestige Brands, Inc.'s ability to obtain cash from our subsidiaries for the purpose of meeting our debt service obligations, including the payment of principal and interest on the 2010 Senior Notes. Although holders of the 2010 Senior Notes will be direct creditors of the guarantors of the 2010 Senior Notes by virtue of the guarantees, we have indirect subsidiaries located primarily in the United Kingdom and in the Netherlands (collectively, the "Non-Guarantor Subsidiaries") that have not guaranteed the 2010 Senior Notes, and such subsidiaries will not be obligated with respect to the 2010 Senior Notes. As a result, the claims of creditors of the Non-Guarantor Subsidiaries will effectively have priority with respect to the assets and earnings of such companies over the claims of the holders of the 2010 Senior Notes.

Presented below are supplemental Condensed Consolidating Balance Sheets as of September 30, 2011 and March 31, 2011, Condensed Consolidating Statements of Operations for the three and six months ended September 30, 2011 and 2010, and Condensed Consolidating Statements of Cash Flows for the six months ended September 30, 2011 and 2010. Such consolidating information includes separate columns for:

a)  Prestige Brands Holdings, Inc., the parent,

b)  Prestige Brands, Inc., the issuer,

c)  Combined Subsidiary Guarantors,

d)  Combined Non-Guarantor Subsidiaries, and

e)  Elimination entries necessary to consolidate the Company and all of its subsidiaries.

The Condensed Consolidating Financial Statements are presented using the equity method of accounting for investments in wholly-owned subsidiaries. Under the equity method, the investments in subsidiaries are recorded at cost and adjusted for our share of the subsidiaries' cumulative results of operations, capital contributions, distributions and other equity changes. The elimination entries principally eliminate investments in subsidiaries and intercompany balances and transactions. The financial information in this note should be read in conjunction with the Consolidated Financial Statements presented and other notes related thereto contained in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2011.

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Condensed Consolidating Statement of Operations

Three Months Ended September 30, 2011

(In thousands)	Prestige Brands Holdings, Inc.			Prestige Brands, Inc., the issuer		Combined Subsidiary Guarantors		Combined Non- Guarantor Subsidiaries		Eliminations			Consolidated
Revenues
Net sales	$	—		$	77,890	$	25,572	$	1,110	$	—		$	104,572
Other revenues	—			157		815		456		(456		)	972
Total revenues	—			78,047		26,387		1,566		(456		)	105,544
Cost of Sales
Cost of sales (exclusive of depreciation shown below)	—			33,081		18,554		459		(456		)	51,638
Gross profit	—			44,966		7,833		1,107		—			53,906
Advertising and promotion	—			11,870		919		284		—			13,073
General and administrative	(138		)	5,803		2,656		540		—			8,861
Depreciation and amortization	143			1,952		458		17		—			2,570
Total operating expenses	5			19,625		4,033		841		—			24,504
Operating income	(5		)	25,341		3,800		266		—			29,402